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South Africa retained its position as the world’s best-performing direct property market in 2025, outperforming developed economies, including the US, Canada, Germany and France, as resilient income returns and recovering capital values helped drive total returns to 11.9%.The latest global property trends report for the 2025 financial year compiled by the South African Property Owners Association (Sapoa) shows the sector’s recovery gained momentum this year, with global all-property total returns improving to 4.8%, more than double the 2% recorded in 2024 and marking a sharp turnaround from the negative returns in 2023.While the recovery was broad-based, performance varied significantly across markets. Canada and Germany generated returns of about 1.3%, while South Africa was once again the world’s top-performing property market, well ahead of its already strong three-year annualised average. Other strong performers included Denmark, the Netherlands and Portugal.The report finds property markets are beginning to emerge from the effects of higher interest rates with capital values showing early signs of stabilisation after several years of valuation declines. Rental income remained the primary source of returns globally, though improving capital growth suggests pricing pressures are easing.“The recovery in global property markets is becoming more broad-based as the effects of yield expansion begin to moderate. While income remains the dominant contributor to returns, capital values are starting to stabilise across a growing number of markets,” the report says.Meanwhile, South Africa continued to distinguish itself through its comparatively high-income returns, complemented by a recovery in capital growth that reinforced the resilience of the local market despite a volatile global backdrop.“South Africa remained the world’s most retail-focused property market in 2025 with retail accounting for 61% of total capital value. By contrast, markets such as the US and UK have become more diversified, with industrial assets now the largest sector by value.”Across property sectors, hotels and retail delivered the strongest returns during the year, while industrial and residential assets continued to post steady gains. The office sector also returned to positive territory after several years of underperformance, though structural challenges persist as occupier demand continues to evolve.Read: PITSO TSIBOLANE | Cape Town be warned: a data centre is more than just a warehouseDespite the strong investment performance, transaction activity in South Africa slowed.According to the report, direct property investment volumes fell to R28.7bn in 2025 from R32.1bn a year earlier, largely due to fewer portfolio transactions. Single-asset deals remained relatively resilient, while retail properties continued to account for the largest share of transactions. Industrial and alternative real estate assets also attracted a growing share of investor capital.The report notes geopolitical tension and interest rate uncertainty remain key risks to the global property recovery. However, resilient rental income, stabilising property values and selective investment opportunities are expected to support further gains.Business Day
